PPP Funds Run Out
Emailed on April 17th 2020 in The Friday Forward
Yesterday at 10:30 am ET the $349 billion PPP bailout fund for small businesses ran out of funds. New applications aren’t being accepted by the Small Business Administration, unless and until congressional Democrats and Republicans settle their differences and pass a $250 billion expansion. The funds didn't even last two weeks.
A quick disbursement of funds was the idea here, but there have been inequities.
Some small businesses were at a disadvantage if they picked “the wrong” bank, or didn’t have the right relationship with that bank.
Small businesses with in-house finance or accounting professionals likely had a leg up. Same goes for ones with savvy institutional investors, depending on what their lawyers told them about affiliation rules, and that will engender understandable bitterness from bootstrapped mom-and-pops.
If there’s still $250 billion of demand, that means there are well over 1 million small businesses in need (based on the initial pot’s average loan size).
And, as Alex Rampell, general partner at Andreessen Horowitz points out, there's a high likelihood of fraud.
There are questions as to which companies are actually real as banks try to cycle through applications as quickly as possible.
According to Rampell:
"The problem is a fintech issue. Why can’t the government directly decide who needs the SBA loan, and disburse it as such without a bank? I would be shocked if there is not billions of dollars worth of fraud,” Rampell says. “Right now, the most profitable possible heist is not robbing the Wynn—it’s going and robbing the U.S. government of the PPP loans.”
"Because you want to make this process as easy as possible to get loans out ASAP, there’s a small amount of information that is being required and high throughput. It’s a bad situation for fraud and for adjudicating the process in general for legitimate businesses. The bank gets a PDF of your payroll statement, they get a copy of your paychecks, and then they have to make the fast decision because Marco Rubio is telling them “go make more loans”—though as he should be since the U.S. economy is relying on this happening quickly."
It's times like these that force us to realize the work to be done in Fintech.